Hertler Market Signal Update

#686 April 20, 2014

Editor, Wally Hertler

Fear Index sell signal; Other indicators are mostly bullish.

The Smart Money Index made another new low. The inverse relationship with stock prices makes the bearish trend for the SMI bullish for stocks.

The late market component (LMC) of the Smart Money Index rallied toward the 50-day moving average. A short term low may be in place.

The EMC (early market component of the SMI) surged to a new high.  Both the EMC and the LMC were buying last week, but especially the EMC. Although in theory the EMC is supposed to represent the dumb money – the emotional traders – it is apparent that the EMC correlates very well with the S&P 500.

          Barron’s Confidence Index at 72.0 remains below the 50-week moving average, which is bearish.

The smart money OEX put/call ratio has fluctuated in a range that could be defined as bearish around 1.9 and bullish around 1.4. But, the ratio seems to have established a new, lower range as it did during 2008-2011. So, we have lowered the range to 1.5 (bearish) and 1.0 (bullish). It has peaked and dropped about half way to the lower limit of the new range, where it seems to have stalled for now.

The “smart money” OEX 15-day P/C open interest fell last week to the lowest value in three years.  It is bullish.

            The equity put/call ratio returned to the descending trend line. It has been stalled at the trend line for some time now.

            The total put/call ratio was nearly unchanged last week. It remains in the lower range of its past four years which is bearish, although it has surpassed its peak of bearish sentiment at the February market low, which should be bullish. It is certainly in a bullish trend whether it has reached its ultimate peak or not.

The small cap/DJIA slipped a bit further, which is bearish.

            The ratio of the NASDAQ Composite to the S&P 500 slipped a bit below support at 2.2. A reversal above support would be bullish at least for the short term. A continuing fall would be bearish.

            The Fear Index 5-DMA, instead of plunging decisively through the 50-day moving average (buy signal) as with earlier buy signals, has crept along the 50-DMA. But, with the new upward surge, it is apparent that the January 27 sell signal is reinforced.

          The AAII Member Bullish Oscillator fell below zero. This indicator is now bullish.

            The Citigroup Panic/Euphoria Model (from Barron’s) dropped to 0.51, but it still remains within the Euphoria Zone. This is the only extended excursion into the Euphoria region since the bull market began in March 2009. It is still bearish.



The Fear Index sell signal was reinforced. By its nature, this indicator tends to lag market turns by a week or so.

Barron’s Confidence Index is bearish.

The (dumb money) equity and total put/call ratios are bullish.

The smart money OEX put/call ratio is becoming bullish.

The Citigroup Model is in the Euphoria region and just off the highest level since the start of the bull market. Although falling, it continues to be bearish.

The AAII members’ bullish oscillator has dropped below zero and is now bullish.

The relative strength of the small caps and the NASDAQ Composite Index is bearish, but possibly poised for a rally.

The Smart Money Index and its components have become bullish.